THE SAAS
PLAYBOOK
B U I L D A M U LT I M I L L I O N
D O L L A R S TA R T U P W I T H O U T
V E N T U R E C A P I TA L
R O B WA L L I N G
Written by Rob Walling
Edited by Jessie Kwak
Cover Art by Pete Garceau
saasplaybook.com
ISBN 979-8-9877465-0-9 (hardcover)
Copyright © 2023 Rob Walling
First Edition
All rights reserved. No part of this book may be
reproduced in any form or by any electronic or
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and retrieval systems, without permission in writing
from Rob Walling, except by a reviewer who may
quote a brief passage in a review.
Trademarked names appear in this book. Rather
than use a trademark symbol with every occurrence
of a name, we use the names solely in an editorial
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with no intention of infringement.
Praise for The SaaS Playbook
“Rob knows software, and he knows startups. I’ve been learning from him
since the early years of HubSpot. You should too.”
— DHARMESH SHAH, Cofounder/CTO, HubSpot
“By far the best book on this subject. Packed with specific instructions but
also surprisingly deep insights into the hurdles and solutions. You can tell he’s
speaking not only from his own extensive experience but from knowing hundreds of other startups. A must-read for every bootstrapping entrepreneur.”
— DEREK SIVERS, Founder of CD Baby. Author of Anything You Want
“If you’re starting or running a SaaS business, this book isn’t just good; it’s
essential. Rob’s seen hundreds of SaaS businesses fail and dozens succeed,
and he’s distilled that knowledge into a beautifully readable, perfect-sized
volume of only the really good advice. Even as a seasoned founder, I kept
uncovering bits of gold, chapter after chapter. You will, too. If you want to
avoid the pitfalls that imperil every SaaS startup (and kill 95% of them),
read this cover to cover and refer back often; that’s my plan.”
— RAND FISHKIN, Cofounder, SparkToro
“I do whatever Rob recommends in SaaS! With a track record like his, it’s
a gift he’s sharing this playbook with the world. Must read for every SaaS
creator.”
— NOAH KAGAN, Chief Sumo, AppSumo.
“Rob’s one of the few minds who sits at the center of the SaaS ecosystem
with the knowledge of not only how to build SaaS products properly but also
how to scale them. His playbook is something I’ve wanted for years—glad he
finally put it down on the page so we can all learn.”
— PATRICK CAMPBELL,
“Most of the advice that’s out there about growing a SaaS past the initial
phases is pretty bad. Not a lot of people have actually run a bootstrapped
SaaS business for a long time. Rob Walling is the exception. He’s been in
the trenches for over a decade and has been mentoring the indie software
community the whole time. I started reading this book, and I can’t put it
down.”
— PELDI GUILIZZONI,
“Rob has more years in the bootstrapped trenches than anyone, and that’s
why he’s my go-to source for how to build a lucrative bootstrapped business.
After learning from his teachings and community, I exited my bootstrapped
SaaS for 7 figures!”
— LAURA ROEDER,
“Rob is a startup Grand Master who’s inspired me and countless others. A
chance to learn from Rob’s condensed knowledge is a drop-everything-anddo-this-instead moment.”
— COURTLAND ALLEN,
“Rob has instilled so many important lessons about building software businesses in me so deeply that I almost forget how naive and lost I was before
finding his work. Even if you wouldn't call your business SaaS, you're going to
learn something from this book that changes the trajectory of your company.”
— ADAM WATHAN,
“If you want to raise a million dollars for your next big idea, look elsewhere.
If you want to develop your idea into a multimillion-dollar software company, this book is for you. Rob Walling is the go-to strategist for bootstrapped
entrepreneurs. As a founder, he's achieved life-changing exits, all while advising and helping countless others. His ability to share his in-the-trenches
experience with authenticity, clarity and intellectual honesty is unmatched.”
— DAN ANDREWS, Author of Before the Exit
About the Author
Rob Walling is a serial entrepreneur who has started six companies (five bootstrapped, one funded). He’s been teaching founders
how to build, launch, and grow startups for 17 years, but he hopes
that doesn’t make him sound old.
He runs the largest community for non-venture track SaaS founders, MicroConf, and the first bootstrapper-friendly accelerator for
SaaS, TinySeed.
His podcast Startups for the Rest of Us has shipped every week
since 2010 and now has more than 650 episodes and 10 million
downloads.
Rob has invested in more than 125 companies and has been quoted in dozens of major publications, including The Wall Street Journal, Forbes, Entrepreneur, and Inc. Magazine.
This is his fourth book about building startups. Learn more about
him at RobWalling.com.
For this book’s online resources or to purchase the print, ebook,
or audio version, visit saasplaybook.com.
Dedication
To Sherry and the boys
Thank you for your tremendous
support during the years it took me
to learn what’s in this book
Table of Contents
Foreword
13
Introduction
19
The Playbook for Building a Multimillion-Dollar SaaS
29
29
31
34
35
39
Market
43
43
51
55
57
62
Pricing
67
67
70
73
75
79
80
Marketing
87
87
89
93
95
101
109
Team
117
117
127
1 31
135
139
80/20 SaaS Metrics
143
143
145
152
154
161
Mindset
165
165
168
171
176
179
182
186
Afterword
Acknowledgments
Appendix A: Resources
191
193
195
Foreword
by JASON COHEN,
Is it OK to want to get rich with your own two hands, beholden
to no one, especially not to some already rich person who wants
to trade a huge chunk of the reward for a check and some advice
from the cheap seats?
Is it OK to be obsessed with your work and ideas yet not want to
“change the world” or “put a dent in the universe?” Is it OK if you
want to make a low-chance-of-success career decision mostly because you hate being told what to do and therefore cannot, in your
own words, be successful in a “real job?”
Is it OK to have the hubris of thinking your product is better than
the other hundred already in-market and that it makes sense for a
101st to exist? Is it OK to spend every waking hour (including two
in the morning) obsessing about your project rather than about
other people, turning yourself inside out even to the detriment of
health and relationships?
It doesn’t matter whether it’s OK, it’s what you’re going to do.
13
The SaaS Playbook
You’ve already decided to do it; that’s why you’re holding this book.
You’ve already decided you have to do it, whether it’s justified or
not, whether for a higher purpose or a simple force of personality.
Congratulations, that makes you a founder. (Or should I say, condolences.) Join the party.
It is a peculiar party, its members bonded by experiences that can
be explained but not truly understood by those who have not experienced it for themselves, like becoming a parent. Experiences like
quitting your job and finding those you count as friends or family
becoming doubters waiting—maybe even hoping—for you to fail.
The elation the first time a customer gives you money for something that you created, which you can hardly believe they did considering how bad the product is.
The trepidation of the first time you hire someone, where the family of a fellow human being is now dependent on you, and suddenly you realize that payroll is a permanent inexorable weight, a
new stressor and a visceral demonstration that the line between
“business” and “personal” is very wide and very fuzzy.
The gut-wrenching first time you fire someone, having worsened
the situation by waiting far too long, having no idea how to be
constructive, giving explanations that are nonsensical because
they are not the true reason, knowing you are putting their entire
family at risk, and afterward the others simply mutter “what took
you so long?”
The constant barrage of customer complaints and compliments,
of showing up randomly on Twitter and in newsletters, whether
for good or ill, of judgments from anyone and everyone about how
stupid it is that you did this or how genius it was that you did that,
which incidentally they’re wrong about half the time, although it
can be hard to tell which is which.
14
Most of what you’ll need to do, you’ve never done before, and
you’re not good at it, although you think you are. Probably you’ll
be better than most people at doing it for the first time because
you’re highly motivated and because the work is connected to
other work that you do understand. So, you don’t know marketing, but you do know your customer; it’s better to write clearly and
directly to a person you deeply understand than to have a degree
in advertising.
Still, you’re not good at it, whether or not you think you are a genius at everything. This delusion of competence is helpful in overcoming the otherwise overwhelming barriers to embarking on this
improbable project. And in some aspects, your unacknowledged
deficiencies aren’t detrimental—you don’t need to be an expert in
E&O insurance when no customers are depending on your software, nor in accounting when there’s no revenue to account for.
But there are key areas, early in the life of a bootstrapped company, where lack of competence is a leading cause of death. Dozens
of twittering successful bootstrappers agree, for example, that
picking the right market was the primary cause of their success;
many self-reported autopsies blame the converse. Pricing is another example; in my case, the moment when hyper-growth ignited in my most successful company was exactly coincident with a
customer-inspired revamp of our pricing and packaging.
Focusing your attention and your learning on these specific areas
that are covered in this book—market, pricing, and also market15
Foreword
So you possess the personality defect that drives you to join this
coterie; now comes the hard work. Fortunately for you, Rob Walling has been one of the most active members of this party for
a few decades, having built several successful companies and,
through investment, has seen the ups and downs of more than
one hundred. He distilled this experience into a book of wisdom,
exactly what you need to tackle the work now in front of you.
The SaaS Playbook
ing/sales, team, metrics, and personal mindset—gives you the
best chance to succeed. Success is still not guaranteed, but these
are the areas where it’s most vital to make good decisions. You can
make the best possible decisions in poker and still lose; that’s the
nature of systems—like poker and startups—that are equal parts
skill and luck. In such systems, you must be diligent and intentional in making the best possible decisions, recognizing that luck
is a real but uncontrollable force. And you need the wisdom that
can only come from seeing the movie play out hundreds of times
in different ways, which is exactly what Rob has done, not only
through direct experience but as a writer, thinker, interviewer,
and synthesizer. There is no better way to maximize your probability of winning.
You chose this path because you don’t like to be told what to do,
and here’s a book telling you what to do. But it’s not forcing you to
do things. It’s giving you Cheat Codes in the areas that are crucial
to get right and in which—for the good of the company—you have
to admit you are not a world expert.
And if you discover any of it wasn’t right for you, you can wave
your thriving business in Rob’s face and tell him how wrong he
was. Won’t that be fun?
So read this book. Use it to become a better version of the person
you already are, and give you and your business the best chance
at success.
JASON COHEN,
16
Introduction
My phone buzzed. It was an incoming email.
I never have email notifications turned on, except for two weeks in
late June of 2016. The startup I had launched two and a half years
prior had grown into one of the top 10 companies in our space and
was in the final throes of being acquired.
Some acquisitions are scary. All of them are stressful.
This one was going to be life-changing, which made it even worse.
If it didn’t go through, I’d be back in the startup grind. Restless
sleep. Loads of stress. Financial uncertainty.
For something I had dreamed about for decades, running a
fast-growing bootstrapped startup was more of a mixed experience than I’d anticipated. There was absolutely fun to be had
(“These are the good old days,” I used to remind the team), but the
struggle was real. And it was taking a toll on me.
My mind flashed to the day we crossed $1 million in annual revenue. The day we hired our eighth employee. The day we finally
19
The SaaS Playbook
moved into a real office with huge windows overlooking a busy
downtown street. In each of these moments, I felt like I’d made it.
I then flashed to my “lost” six months in 2014 when I thought of
nothing else except how I was going to make payroll. The moment
I broke down sobbing in my parked car because of the stress of the
acquisition. Or the moments I yelled at my wife or kids for things
that were far more my fault than theirs.
And yet there I sat, in a college classroom outside of Portland,
Oregon, in late June 2016. I was at my oldest son’s cello camp. He
was practicing with a group of other musicians. And I had a new
email notification on my phone.
“Please DocuSign: Drip Written Consent of Board
(asset sale, Drip Shareholder Consent . . .)”
“This is insanity,” I thought. “I can’t believe this has come together.”
To the chagrin of the cello instructor, I motioned that I needed to
step out of the room for a moment. I opened the email, signed the
final documents that would be life-changing in many ways using
my index finger on an iPhone screen, and clicked “confirm.”
It was done. The result I had dreamed of for decades and been “all
in” on for 15 years was over. I could take a deep breath and relax.
At least, that’s what I kept telling myself.
I opened my mobile banking app and logged into our company
bank account. “That’s a lot of zeros.” By far the most money I had
ever seen in one place. At that moment, life felt different.
*Bzzzzzzz*
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Me:
Haha, I was just going to send you the same thing ;-)
Wow.
Congratulations, sir
Derrick:
*virtual handshake* Congrats indeed!
He followed up with a bitmoji of him in a green suit with dollar
bills falling around him, which was quite out of character for my
typically reserved cofounder.
I exhaled slowly. The stress wasn’t going away. I hoped it would
soon.
Why You Should Read This Book
There’s a narrative in the startup ecosystem that assumes you will
raise funding when you start a company.
I’ve attended meetups where I mentioned bootstrapping my company to millions in revenue and was asked, “Why would you do
that?” From the near-mythical origin stories of Apple, Facebook,
and Google to the wildly popular TV show Shark Tank, funding is
the assumption rather than the exception.
In the introduction of my first book, written in 2009, I said the
following:
I am not anti-venture capital. I am anti-everyone-thinking-venture-capital-is-the-only-way-to-start-a-tech-company.
The dream of being picked from a sea of wannapreneurs, anointed
as a “real” founder, and handed buckets of money is alive and well
21
Introduction
A text message arrived from Derrick, my cofounder, with whom
I’d spent the past three and a half years building Drip. He’d sent
me a screenshot of the company bank balance.
The SaaS Playbook
in Silicon Valley and other startup hubs around the world. Except
there’s something wrong with seeking this narrative . . . It’s lazy.
It implies that you need someone else’s permission to build your
company. That you’re not a real entrepreneur until an investor
tells you that you are.
Or maybe you like having an excuse not to ship, and a never-ending quest for funding is a pretty good excuse. There’s a reason the
most common piece of advice I give aspiring founders is:
Build your business, not your slide deck.
Instead of waiting for a basket of money to fall into your lap, go
build your business. If you were an author, I would tell you to stop
asking publishers for permission and go write your book. Andy
Weir (author of The Martian) didn’t wait for approval; he wrote
an international bestseller that’s been made into a film starring
Matt Damon.
If you were a filmmaker, I would tell you to stop asking film studios for permission and go make a film. Kevin Smith and Robert
Rodriguez did, and they’ve built careers based on their unique
voices and scrappy approaches to filmmaking.
Much like the author who waits to write their book, or the filmmaker who waits for permission from the studio, the startup
founder who waits for funding to start their company is more
likely to wind up disappointed than funded. At least, that’s the
way the numbers play out.
If you search for meetups about startups, most will assume you
are seeking funding. If you search the Internet for how to launch
a startup, the first step is usually building a slide deck to pitch
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The point of this book is to show you that path. If raising funding is the blue pill, I invite you to take the red one. It may not be
pleasant, but it’s a reality you control. A reality where you don’t
need permission.
After nearly two decades of working with startup founders, I know
that bootstrapping takes longer to generate life-changing wealth
than the moonshot approach of raising venture capital. But the
likelihood of some kind of a “base hit” is much, much higher. You
might think of it as a .01% chance of making $100 million versus a
20% or 30% chance of making hundreds of thousands or millions
(and maybe a higher percentage if you don’t make the common
mistakes).
More than 99% of companies that seek funding do not receive it,
and the vast majority of those that land funding ultimately fail.
This is not the case with bootstrapping, as I’ve observed firsthand while starting six startups and running the largest community for bootstrapped (and mostly bootstrapped) software founders, MicroConf.
There are superpowers to being bootstrapped. One is that you
don’t need anyone’s permission to start or build your company.
Another is that your business doesn’t die until you quit. Bootstrappers don’t run out of money; they run out of motivation.
It’s a shame that although more than 99% of new companies
started every year take no funding, every article you read about
starting a tech startup assumes and glorifies the raising of a huge
funding round. As if raising funding is the goal—it’s not.
Building a business that generates enormous profit and serves
its customers, founders, and employees should be the goal. As a
23
Introduction
to investors. Instead, I would tell you to focus on building your
business.
The SaaS Playbook
founder, you’re likely seeking freedom from working for others or
wealth to support your lifestyle.
Maybe you want to spend 10 hours a week working on your company and the rest of the time traveling or with your family.
Or maybe you want to earn millions of dollars so you can buy your
dream car, your dream house, or Banksy NFT.
Maybe you just want a sane work life in which you have more say
about when and how much you work.
There are many reasons to start your own company, and funding
is simply a tool you may or may not opt to use. The good news is
the easiest way to raise funding is to build a great business first.
I wish the tech press spent more time selling us on this dream and
less time telling us how a company that will be out of business in
18 months just closed its Series A (at a ridiculous valuation, no
less; otherwise it wouldn’t be on the front page of TechCrunch).
Aspiring founders read this and figure that if they play the startup
lottery, one day they, too, can be anointed as worthy.
My intent is not to dissuade you from raising funding (I run a fund
that invests in startups, for crying out loud). My hope is to expose
you to the massive, unseen part of the startup ecosystem that
exists beyond the tech press. The part that houses the more than
99% of startups that don’t ask for permission to start.
Instead, they show up, they work hard, they focus, and they ship
products every day. They made the decision to build their business instead of their slide deck. This is what I did on my 13-year
journey bootstrapping software products and software as a service (SaaS) companies. Tens of thousands of others are doing the
same today.
24
Who Should Read This Book
If you want to build an ambitious software startup with or without raising capital, you should read this book.
More specifically, I will focus on SaaS. Think of SaaS companies
as real products used by real customers who pay them real money
(usually monthly or annually). You’re likely aware of many SaaS
companies: MailChimp, Basecamp, Dropbox, Slack, and Zoom,
to name a few.
If you’re looking to grow a side project that could one day replace
your full-time income (and then some), you should read this book.
If you’re a software developer, a no-code aficionado, or you’ve
never written code in your life, but you’re looking to learn the
most actionable tactics and frameworks to build and launch a
SaaS, you should read this book.
If you’re looking to learn how to build a product people want and
are willing to pay for or how to reach customers at enough scale
to grow your company into a seven- or eight-figure business, you
should read this book.
Who Shouldn’t Read This Book
If you are dead set on raising venture capital and building a highrisk billion-dollar company, this book is not for you. I won’t be
showing you how to hone your pitch deck, cozy up to venture
capitalists, or evaluate a term sheet.
If you’re looking for excuses for not making progress on your
25
Introduction
Many will become successful, and some will become wildly profitable. They won't get there by waiting around or asking permission. They show up every day, and they do the work.
The SaaS Playbook
startup, this book is not for you. I won’t be telling you that you
deserve to be successful or that it’s going to be easy. I’ve been
doing this too long to present it any other way.
If you’re looking to build a business on your own that pays your
bills but doesn’t grow beyond that, this book will have mixed value for you. There’s a significant difference between launching a
product that generates $20,000 per month and one that makes
$200,000 per month, starting with foundational elements like the
idea and the market.
If you want to build a business that allows you to stay small and
live the four-hour workweek, I suggest checking out my first book,
Start Small, Stay Small: A Developer’s Guide to Launching a Startup
(even if you’re not a developer).
That book focuses on starting small software companies for lifestyle purposes like quitting your day job or minimizing the hours
you need to work. You might think of the book you’re currently
reading as a sort of spiritual sequel to Start Small, Stay Small.
If you’re looking for the promise of riches followed by generic
advice like “build an audience and ask them what they want,”
“scratch your own itch,” and “follow your passion,” this book is
not for you. It’s not a regurgitation of the feel-good entrepreneurial tropes on social media.
26
The Playbook for Building
a Multimillion-Dollar SaaS
You Know What’s Cool? A Million Dollars.
I struggled with the title of this book. I’m not a fan of hard-selling, over-promising Internet marketers who use phrases like
“seven-figure” or “million-dollar” because they have a nice ring
to them.
And yet, this book focuses specifically on guiding you toward
launching and growing a SaaS product to seven or eight figures
in revenue. So “Build a Multimillion-Dollar Startup” is the actual
focus, not just marketing copy.
My first book, Start Small, Stay Small, focused on tiny niche products that generate thousands or low tens of thousands in revenue
each month.
That’s not the focus of this book.
This one is another step or two along the journey (in my Stair Step
Method of Entrepreneurship, this book is focused on step 3).
29
The SaaS Playbook
The Stair Step Method of
Entrepreneurship
STEP 3
STEP 2
STEP 1
Standalone SaaS product
Repeat step 1 until you
own your time
(e.g, three Shopify apps or WP plugins)
One predictable, organic
marketing channel
(e.g, Google, Shopify app store, WP.org)
Step 1: Your First Product
Step 2: Rinse and Repeat
Step 3: Standalone SaaS Product
30
Whether you’ve bought out your time with smaller products or you
want to jump into the deep end, this is the playbook for launching
and growing a SaaS startup to millions in revenue without raising
buckets of venture capital.
This book is filled with lessons I’ve learned about building companies, having done it myself, invested in more than 125 startups,
and worked closely with thousands of founders through my writings, podcast, community, and SaaS accelerator.
It’s a collection of the best strategies, tactics, and frameworks I
know for conquering the speed bumps you’ll encounter on your
startup journey.
What Is Bootstrapping, Really?
As recent as a few years ago, a startup was one of two things:
bootstrapped or venture-funded. Over the past few years, more
options have become available, even though most people still
think in terms of the bootstrapping versus funding dichotomy.
Here are terms the startup community uses to describe the funding status of a company:
Bootstrapped: You started the business on your own, with limited resources, and grew it slowly over time as the business generated cash. This is the longer road, but it allows you to maintain
complete control of the business and not answer to investors.
Venture-funded: You found investors (sometimes friends and
family, but usually angel investors or venture capital firms) who
were willing to write you a check to grow your company and raise
31
The Playbook for Building a Multimillion-Dollar SaaS
I developed the Stair Step Method based on patterns I saw in the
bootstrapped software community, but of course, it’s possible to
skip the stairs and still achieve success with your product.
The SaaS Playbook
your next round of funding in about 18 months. Rinse, repeat,
and sell the company or IPO seven to ten years later for at least a
billion dollars.
Self-funded: Some use this interchangeably with bootstrapping. I
define it as being able to fund your next startup with your current
resources.
Maybe you have a product generating $30,000 a month, so you’re
able to invest $15,000 a month into your next effort. I did this
when I started an email service provider called Drip. I invested
between $150,000 and $200,000 of the profits from a prior SaaS
company into building, launching, and growing Drip before we
reached profitability.
I had that luxury because I had stair-stepped my way up from
consulting during the day and building products at night to having
a few small software products making $500 to $5,000 per month
to a SaaS application that earned $25,000 to $30,000 per month
and allowed me to enter the extremely competitive and lucrative
market of email service providers.
Mostly bootstrapped: Some founders want to build a bootstrapped company but know that a bit of funding will help them
get there faster. These funding rounds are usually in the $100,000
to $500,000 range, and they are raised from friends and family,
non-venture-focused angel investors, and bootstrapper-friendly
funds like the one I run, TinySeed.
I was blown away the first time I heard a founder talk about raising funding without the intention of following the path of traditional venture capital. That company is Customer.io, which raised
its first round of $250,000 in 2012. Customer.io is now a highly
profitable, eight-figure SaaS company.
They have since raised additional rounds of funding, but the
32
Castos is another example. The founder, Craig Hewitt, saw a gap
in the podcast hosting market and parlayed a podcast editing
service into a WordPress plugin and then into a SaaS business
called Castos. He grew the company profitably to six figures of
annual recurring revenue before taking $120,000 in funding from
TinySeed, followed a year or so later by an additional $756,000 in
funding from follow-on investors.
Craig used his funding to expand their team, allowing him to grow
top-line revenue and create room to expand the team even further.
He didn’t sign a lease on a big office in the SOMA neighborhood of
San Francisco or spend $50,000 on a billboard on Highway 101.
Instead, he hired slowly and grew efficiently. Thus, I call Castos a
mostly bootstrapped startup.
So Many Terms, Which Should We Use?
In this book, “bootstrapped” includes self-funded, bootstrapped,
and mostly bootstrapped startups. The difference between having no money or a bit of money is insignificant compared to the
chasm between bootstrapping and raising millions in venture
capital to shoot for that “$1 billion valuation or bust.” It’s no longer a dichotomy of funding versus no funding; it’s about how you
approach your company’s growth.
Do you aim to build a real product that sells to real customers who
pay you real money? This book calls you “bootstrapped,” even if
you raise a bit of money.
33
The Playbook for Building a Multimillion-Dollar SaaS
founders still own the vast majority of the company, and they
run it as if it were bootstrapped. It’s capital efficient, maintains
healthy but steady growth, and focuses on serving its customers
and team members rather than its investors. I would call them a
mostly bootstrapped company. They don’t fit the technical definition of bootstrapped, but they are much closer to being bootstrapped than venture-funded.
The SaaS Playbook
Do you aim to run your company near break-even, be capital efficient with your decisions, and potentially pull profits out over the
long term (or sell if it makes sense)? This book calls you “bootstrapped,” even if you raise a bit of money.
Do you aim to avoid raising money from investors who want you
to raise another round of funding every 18 months and consider it
a failure if you don’t sell for $1 billion? This book calls you “bootstrapped,” even if you raise a bit of money.
Why Focus on SaaS?
You might wonder why this book focuses specifically on SaaS and
not just tech startups, such as two-sided marketplaces, biotech,
direct-to-consumer applications, and games.
Focusing on SaaS allows me to give extremely specific advice that
doesn’t apply to other types of companies. For example, I could
spend pages discussing churn, onboarding, and lifetime value
(LTV), topics that don’t apply to some companies.
If this book were not focused on a single type of company, I’d have
to take the typical approach and water down my advice, providing
you with less actionable information and far less value.
A Repeatable Playbook
SaaS may seem boring to people outside of it. Instead of the next
sexy direct-to-consumer viral game, ride-sharing app, or social
network, SaaS focuses on solving pain points for businesses.
Thus, the ideas seem pretty dry if you can’t see past them and
look at the exciting part: you are solving someone’s problem in a
real way and creating a valuable business while doing it.
Through my years of starting companies and hosting events for
startup founders through MicroConf, I’ve been exposed to thou34
Several years ago, I began to pull out success patterns, turning
them into SaaS-specific rules of thumb, best practices, and frameworks. Those have coalesced into a repeatable playbook that I’ve
seen tested and improved in my own startups and in those I’ve
invested in or advised.
This book is the culmination of those years of trial and error.
Why Is SaaS the Best Business Model?
There are a couple of reasons why SaaS companies have the best
business model in the world. Let’s dig deep into some of the most
relevant.
Recurring Revenue
Every business wishes it could charge a subscription for its services and get paid in advance before it renders those services.
There’s a reason every consumer product niche is now blanketed
with subscription companies, whether they sell snacks, underwear, or Star Wars merch. The subscription razor startup Dollar
Shave Club sold for a billion dollars.
John Warrilow wrote an entire book on how to do this with traditional, non-subscription businesses called The Automatic Customer: Creating a Subscription Business in Any Industry.
Subscription revenue is a business cheat code.
Recurring revenue protects you during recessions and builds on
itself every month. Every business wants recurring revenue, but
35
The Playbook for Building a Multimillion-Dollar SaaS
sands of founders and their journeys, both successful and unsuccessful.
The SaaS Playbook
only some can pull it off.
With SaaS, it’s built into the business model. People expect to pay
you every month (or year) for your product. There is no need for
financial gymnastics; you get it free with SaaS.
Recession-Resistant
During the 2008 financial crisis, I owned a small software product
that sold for a $295 one-time fee. As the recession hit, my revenue
dropped by 80% in one month. I was lucky I had other sources of
income to support me, a few of which charged a subscription. This
crisis was my wake-up call: recurring revenue handles economic
downturns exceptionally well.
Even if revenue plateaus during a recession or other unexpected
events (like the COVID-19 global economy shutdown), revenue
tends to be insulated against a free fall thanks to its recurring nature.
Not Dependent on Luck
My mental framework for success involves varying degrees of hard
work, luck, and skill. The amount of each depends on a myriad of
factors, with hard work and skill being the easiest to control.
Launching a B2B SaaS company is about building a real product
for real customers who pay you real money. You’re solving a problem, and therefore your profitability is based on finding a problem
that’s worth paying to resolve and solving it in a way that makes
your users desperately want your solution. There’s not much luck
in that formula.
Compare that to a crypto startup, a new social network, or a
ride-sharing app. Each of these spaces has had dozens of companies focused on them for years, and their winner-takes-all dynamics require hard work, great execution, and a good bit of luck.
There were many social networks before Facebook and ride-sharing
36
Don’t bootstrap a SaaS product if you want to start a startup for
the excitement or the press coverage. Instead, move to a startup
hub, raise boatloads of money, and hope you’ve bought the winning startup lottery ticket. If you want to start a company with a
higher chance of a “base hit” outcome (meaning millions or tens
of millions in revenue or enterprise value), go with SaaS.
Not Fighting a Battle on Two Fronts
One of the most challenging problems to solve when building a
startup is kickstarting a two-sided marketplace, where you need to
bring both supply and demand to the table simultaneously (think
eBay or Uber). It’s a bit like marketing two startups at once, and
one of the most common pieces of advice I give to bootstrapped
founders who want to start a two-sided marketplace is: Don’t.
It’s not that they can’t work, but they usually need a ton of funding
to get off the ground, and building one requires much more luck
than most people realize. With a two-sided marketplace, if you
have 10 people on one side and 1,000 on the other, your business
is a failure. With B2B SaaS, if you have one, 10, or 100 customers,
you have a business.
You Don’t Need Funding
There are certain startups, such as those that manufacture physical products, marketplaces that charge a transaction fee, or social
networks that push off monetization for years, that burn capital in
the early days much faster than they generate it from customers.
These businesses require outside funding to pay for their burn
until they hit scale.
For the most part, SaaS does not have this capital requirement.
There are thousands, if not tens of thousands, of SaaS companies
37
The Playbook for Building a Multimillion-Dollar SaaS
apps before Uber. Still, variables out of your control, like smartphone penetration, consumer behavior, or Internet speeds, can
make or break your company. This tends to be different in SaaS.
The SaaS Playbook
that are profitable, continue to grow, and have never raised a dime
of outside funding. Companies like Zoom, Slack, and PagerDuty
went public with an enormous percentage of their venture capital
still in their bank accounts. Actually, Zoom had more cash in the
bank than they had raised!
As I said in the introduction, I am not opposed to outside funding,
and in many cases, it’s the best option to survive the early days
and reach escape velocity. But one of the best aspects of SaaS
is that you don’t need funding, but if you find it helpful at some
point, your capital efficiency and incredible margins make it relatively easy to raise.
Because of the low cost of servicing additional customers, SaaS
companies reach gross profit margins of 90% and net profit margins of 50% or more at scale. This capital efficiency is one of the
reasons they are easier to bootstrap than most other types of
startups and an abundance of cash flows into SaaS, both from
venture capital and private equity.
High Exit Multiples
The increasing volume of cash-seeking to invest in or acquire
SaaS companies has driven their valuations higher and higher
each year. Exact valuations depend on your annual recurring revenue (ARR), growth rate, platform risk, and other factors. Still, it’s
not uncommon for a growing SaaS company doing $1 million or
$2 million annually to sell for four to eight times top-line revenue.
Note I didn’t say four to eight times profit, a multiple many businesses would kill for.
Think about it this way: for every $1,000 of monthly recurring
revenue (MRR) you generate, you generate $60,000 of value in
your company (assuming you sell at five times annual revenue).
That is an unreal multiplier on your effort.
38
Achieving Escape Velocity
When I sat down to write this book, I sketched out a long list of
topics. It quickly became apparent that topics relevant at one stage
of a startup are less relevant at another. For example, if you’ve just
launched, you should approach finding customers differently than
if you’re making $100,000 in MRR.
To that end, I decided to focus this book on topics that will help
a business with some semblance of product-market fit take its
company to the next level.
My mental shorthand for product-market fit is: you’ve built something businesses want and are willing to pay for. With SaaS, product-market fit starts very weak and often begins to strengthen
when you’re around $10,000 or $20,000 MRR. It then transitions
to the next level, what I call escape velocity, once you’ve built one
or more repeatable growth channels.
The process of moving from “a product people love” (product-market fit) to “a product people love, and you can find more of them
every week” (escape velocity) involves building your product for
your ideal customer, finding one or more marketing channels that
work, building moats, reevaluating pricing, building your team,
unlocking SaaS Cheat Codes, and finding and fixing bottlenecks
in your funnel.
39
The Playbook for Building a Multimillion-Dollar SaaS
You may build your company and run it forever, which is great.
But if you decide to exit at some point, know that the value you’ve
created in your company is enormous compared to the same size
company in most other sectors.
The SaaS Playbook
The strategies in this book are arranged into six parts:
• Market: How to understand your market and beat your competition
• Pricing: Structuring pricing for maximum growth
• Marketing: Finding and scaling the right marketing channels
• Team: How to get the right people working with you
• 80/20 Metrics: The highest-impact SaaS metrics you should
be watching
• Mindset: The psychological factors that can help you become a successful founder
Although all of the strategies, tools, and frameworks in this book
will help your business grow, keep an eye out for four super-strategies, which I call the SaaS Cheat Codes.
These Cheat Codes—expansion revenue, virality, net negative
churn, and dual funnels—can grow your business at an incredible
pace if you get them right.
Let’s dive in!
40
Market
Strengthening Product-Market Fit
As I said in the introduction, this book assumes you have some
semblance of product-market fit, but it is a long road from launching a product to building something people want and are willing
to pay for.
So much of your company’s success will depend on developing
a deep understanding of your market and ideal customer. Often,
this understanding becomes a moat of sorts and is one of the best
ways I know to strengthen the love your customers have for your
product.
Although there are many ways to develop this understanding, one
of the most reliable is having conversations.
Most entrepreneurs don’t have enough conversations with potential, current, and past customers. It’s time-consuming, and while
running a company, you’re doing everything from building new
features to troubleshooting security issues to answering support
43
The SaaS Playbook
emails. Even if you see the value of customer research, how do you
find the time to do it?
There’s another reason entrepreneurs don’t talk to customers:
fear—fear that they’re bothering them, fear the customer will say
something they don’t want to hear, fear that it’s a waste of time.
In my experience, the conversations you have with customers,
whether via email, chat, or on a call, will be some of the most valuable time you spend understanding your market, especially in the
early days.
These conversations will inform your product road map and how
you build features as well as your positioning, marketing copy,
and pricing. You’ll build a better product for your ideal customer
faster than if you try to guess what people need.
When Ruben Gamez, the founder of SignWell, decided to build an
e-signature tool, he knew he needed to do something unique to
make his product stand out. He talked to people about the problems they had with e-signature tools, and one thing he kept hearing was that customers wanted to send a link to the document that
needed to be signed rather than having the email come from an
impersonal third-party service.
Ruben listened, and that was one of the many features he heard
through customer conversation that helped SignWell become a
strong player in an incredibly competitive market.
Who should you be talking to?
•
•
•
•
Prospects
Customers
People who decided not to become customers
People who became customers and then canceled
44
•
•
•
•
•
Can you walk me through a sample flow?
What problem are you trying to solve?
What do you currently use to solve this problem?
What did you use in the past?
What are some of your biggest frustrations about this solution?
As a general rule, ask open-ended rather than leading questions.
If you say, “We’re thinking about building this. Check out this
mock-up,” most people will have a hard time being honest. They
don’t want to hurt your feelings, so they go along with it and you
don’t get useful data.
Deep dives into customer conversations have literally filled books.
For a great resource on doing customer interviews as a founder,
check out the book Deploy Empathy: A Practical Guide to Interviewing Customers by Michele Hansen. You can also listen to my
interview with Michele on Episode 586 of the Startups for the Rest
of Us podcast.
In these conversations, this is the time to put your consultant hat
on and have a conversation entirely focused on your customer’s
needs, not your product—this part is important.
As Jim Kalbach, author of The Jobs To Be Done Playbook, told me
on Episode 577 of my podcast, when you look at the people you
serve through the lens of your own solution or product, it clouds
your judgment.
By taking yourself and your offering out of the equation, potentially
—there’s no guarantee of this—you can actually find opportunities
45
Market
Asking the Right Questions
The key to getting actionable information from customers depends
on whether you’re doing early customer discovery or researching
how (and whether) to build a new feature. But typical questions
might include:
The SaaS Playbook
that you wouldn’t see otherwise.”
Building the Features Your Customers Want
One of the popular memes in the entrepreneurial world is that
your customers will tell you what they want—just launch something ASAP, and they’ll tell you how to make your product better.
But that is assuming your customers know what they want.
Henry Ford never actually said his customers wanted faster horses instead of a car, but the wisdom in that story is strong enough
that people have been repeating it for 100 years.
Your customers don’t know how to build software as well as you
do, and even if they did, they’d never match the insights about the
market you’ve learned building your product. In fact, if they could,
you should probably close up shop, go to bed, and try something
new in the morning.
As my last startup, Drip, began to grow, we received several feature requests per day, and we had to constantly make difficult decisions about which ones we were going to invest our limited time
and resources into building.
I wanted to build a product that people used—a lot of people—
and that meant learning how to take certain points of feedback to
heart and discard the rest. A big part of the reason Drip was successful was that we used the feedback from our best customers
to find and solve problems other email service providers didn’t.
This involves learning how to separate valuable ideas from distractions, and until you hire a product manager (something that
typically happens north of $1 million in ARR), you’re the person
who needs to decide which features will strengthen your product-market fit.
46
The Crackpots. First up are the crackpot requests: ideas so far out
of left field you can’t imagine why they want it or even understand
what they mean.
The crackpot suggestions are the easiest to process because you
know right away you’re not going to build them.
Here are some examples of oddball requests:
• Features that would require building an entirely new product
(e.g., “Why can’t I use your email provider to publish blog
posts?”)
• Features that would turn your product into a clone of your
competitors (e.g., “It’d be great if you could add a shopping
cart, and a CRM, and lead scoring, and . . . just build a clone
of Hubspot and charge me one-tenth of the price.”)
• Features that are the opposite of your product’s strengths
(e.g., “I like that your UI’s so streamlined, but can you add
these ten new options to fit my rare and unique use case?”)
No, no, and no—these folks make it easy to say, “Sorry, these requests are not a fit for us.”
No-Brainers. You’ll also get requests that are either already on
your road map or make you wonder why you didn’t think of them.
Once in a while, your customers will come up with an idea that’s
so awesome you want to put it into production immediately.
These are also easy to handle because you know they’ll objectively improve the product and make it more valuable for your users.
For instance, at one point, a customer reached out to see if there
was a way to retroactively add a tag to his subscribers based on
47
Market
I filtered them by putting them into three buckets: The Crackpots,
No-Brainers, and In-Betweens.
The SaaS Playbook
links they had clicked in the past.
Well, no . . . but it was a great idea and not terribly hard to build.
Drip was (and might still be) the only product that offered that
feature, and it became a powerful tool for our users that they
couldn’t use anywhere else.
List pruning is another example of a no-brainer feature. Subscribers zone out over time, driving up the cost of your email plan and
skewing your metrics with “dead” users that wouldn’t open an
email if it contained the cure for cancer.
Most list management systems don’t have built-in list pruning,
and it’s a big chore to go back and figure out which subscribers to
delete from your list.
So when a customer reached out and asked if we could make a
button that would prune inactive subscribers according to some
basic best practices, we immediately put it on our road map.
In-Betweens. I’d estimate only 10% to 15% of the feature requests
are crackpots, while maybe 20% are no-brainers, so that leaves a
lot of judgment calls.
The reality of running a software product is that you will get dozens of feature requests that aren’t necessarily bad, but aren’t slam
dunks either.
You can’t build all of them—that’s how good software bloats into
a mass of buttons, boxes, toggles, and settings. As the founder,
you’re the gatekeeper. You’re going to have to say “no” to an awful
lot of good ideas.
I usually roll my eyes when people quote Steve Jobs as their reason for taking a particular course of action because he was such
an outlier that his thinking won’t work for most of us. But on the
48
“ People think focus means saying yes to the thing you’ve got to focus
on. But that’s not what it means at all. It means saying no to the hundred other good ideas . . . Innovation is saying ‘no’ to 1,000 things.”
As we just discussed, one way to weed through feature requests is
to figure out the problem your customer is trying to solve. When
a customer asks you to add a new kind of button, they don’t really care about the button—they’re trying to do something in the
software they can’t figure out and believe a button is the best way
to accomplish that.
Your job is to figure out the problem your customer is trying to
solve, not just build the solution they suggest. Then, figure out
whether that solution requires a new feature and whether it’s
worth building.
It’s pretty easy to do this in a way that makes people feel like
you’ve listened to them, whether you end up building what they
want or not.
Ask yourself these three questions:
Question #1: What’s the Use Case for This? Or, in layman’s terms,
what problem are you trying to solve?
You can get at this by asking questions such as: “What leads you
to want that? What problem are you trying to solve with this feature? What are you currently using to get that done?”
Sometimes you’ll realize you already have a way to solve the customer’s problem but in a way they hadn’t discovered yet. At that
point, it’s up to you to explain how they can use your tool to accomplish their goal and maybe add something to the UI to help
other users find it more easily.
49
Market
topic of saying “no,” he nailed it:
The SaaS Playbook
If your product doesn’t already meet the customer’s needs, you
must determine whether you can build the feature and whether
you want to. At the end of the day, this depends on how many
people you think will use it. This leads us to . . .
Question #2: What Percentage of Customers Will Actually Use
This Feature? More than 5%? Ten? Twenty? You won’t know for
sure, but spitballing your best-guess percentage can help you decide whether to build the feature and how prominent it should be
in the UI.
If you think only 5% to 10% of your customers will use something,
go a step further and spot-check which users they are.
If it’s a random group of users, it might not be worth building. But
if that 5% to 10% are power users and this feature would make
your product more useful to them, consider building it and keeping it hidden from the average user by omitting it from the standard UI and only enabling it upon request.
Why hide these features? Because if the vast majority of your users will never need them, adding dozens of checkboxes and dropdowns will make your core product confusing for them.
If you think 20% or more of your customers will use a feature, it’s
something to consider building.
But first, you have to ask yourself one more question . . .
Question #3: Does This Fit with My Vision of the Product? Every
feature has opportunity costs. Every hour you spend building a
feature is an hour you don’t spend building a different one.
Ultimately, you’re the founder. If a feature request doesn’t fit with
your vision of what the product should be, it’s probably not one
you should build.
50
Too many products get cluttered with obscure features that only
help one or two customers, and too many entrepreneurs get
bogged down in building endless feature requests instead of focusing on making great software.
As a bootstrapper, time and money are precious, and feature requests can wipe out both quickly.
But the most important resource in your company—and the most
scarce—is your vision for your product and how it solves your
customers’ problems.
Solving your customers’ problems is the road to strengthening
product-market fit. Expect a long, slow road of customer conversations and hard decisions with incomplete information as you
work to build something people want and are willing to pay for.
How Can I Compete in a Competitive Market?
A mature, competitive market can be a total bloodbath, but it can
also be a fantastic place to grow your business once you get a
foothold.
For one, a competitive market is proven. You already know that
people are willing to pay for the problem your product solves. If
you can figure out a way to stand out among the crowd, you could
be looking at a very lucrative business.
For another, it can be a great place to find an underserved niche
51
Market
One elegant solution to many of those “big lift” feature requests
is to add integrations. Problems that might take weeks or months
to solve are often already solved by another product. If you can
integrate their application programming interfaces (APIs) into
your product in just a few days, fulfilling those requests can be a
win-win for you and the customer.
The SaaS Playbook
of customers who are frustrated with what the big incumbents
have to offer.
You’ve heard stories of small startups disrupting the status quo,
but usually they’re led by an experienced founder, or they’re
backed with impressive amounts of funding. I don’t recommend
starting your first startup in a highly competitive market without
prior experience or funding—or both.
But if you’re getting a foothold in a mature market and you’re
ready to scale up, here are some ways to do it.
Compete on Price
Competing on price is tricky, but you can get traction if you offer
more than 80% of the product for half the cost.
In a mature market, the large players have pricing power that allows them to raise prices relatively frequently. When you don’t
have the brand or credibility, it can be hard for customers to justify
paying the same price for your service.
In addition, your competitors’ pricing power often leaves plenty
of room for you to underprice them and still have significant profit
margins.
In this case, if you’ve built a product that’s easier to use than the
large players’ products and you are less expensive, it can be an incredible one-two punch when convincing early adopters to switch.
I’m not recommending that you remain the low-cost provider indefinitely, but before you’ve built a strong brand, this can be a good
strategy. Of course, you should keep adding value to your product
and raising prices as it matures.
52
Many incumbents in competitive markets have a high-touch sales
process where customers must schedule a demo before learning
the price. They may also have mandatory setup fees.
If you enter the space with a low- or no-touch sales process and
your pricing is listed on your website, you can start winning customers who don’t want to jump through so many hoops.
When we launched Drip into the marketing automation space,
one of the biggest players, Infusionsoft, wouldn’t let you see their
product until you had paid a couple-thousand-dollar setup fee
and gone through the required training.
With Drip we offered a free trial—all you needed was a credit card.
This made early adopters more willing to give us a shot.
Compete on Product
The third area in which you can outmaneuver larger competition is
your product—especially if you’re dealing with larger companies
who have 10- or 15-year-old code bases and clunky user interfaces.
In the world of accounting software, many Quickbooks refugees
are looking for a solution with better UX or more streamlined
features. Xero was able to get a foothold by building a cloud-first
accounting package.
In customer relationship management (CRM), plenty of people
are looking for a Salesforce alternative that feels fresher and like
a better fit for their business. Pipedrive, Close, and many others
have been able to carve out pretty great businesses by improving
product usability and ease of setup.
53
Market
Compete on Sales Model
Another place to innovate against bigger competitors is with your
sales model.
The SaaS Playbook
If you can enter a competitive market with modern UX and the
ability to ship features quickly, you can build a great product while
also developing the reputation of being innovative and nimble.
This is a temporary advantage. Over the years, your UI and code
base will age, and you won’t be able to ship as quickly. By that
time, you should have a more mature product that handles the
majority of use cases versus the early days when you’re using any
advantage you have to compete against full-featured products.
How to Market Against Large Competitors
In Judo, you’re taught to use your opponent’s weight and strength
against them. The same holds true in business.
You’re not going to outmuscle or outspend entrenched, well-funded competitors. You need to use their biggest strength (their size)
to your advantage.
With big companies comes slowness to react to the market, dated UX, legacy code, and all the competitive disadvantages we
discussed. If they’ve been dominating the market for years, they
probably also have a group of users who have defaulted to using
them but are frustrated by the experience.
If you can find this group that desperately wants to escape and
help them migrate to your tool, not only will you gain new customers, but they will rave about you to others in their circle.
You’ve turned the strong brand of your competitor into a massive
lever: word of mouth.
People also love the scrappy new underdog, which can be a great
marketing angle for a startup in a competitive market.
Rental car company Avis did this with its “We’re #2, we try harder”
ads in the 1980s.
54
The headline on our homepage was “Lightweight Marketing Automation That Doesn’t Suck,” which was very much a swipe at our
larger, clunkier competitors.
How Much Should I Worry about Competition?
Most founders worry too much about their competition. They follow them on social media, scour the news for updates, and have
Google alerts set up on competing founders and executives.
And it’s not doing their mental health any favors.
You do need to have your finger on the pulse of the competitive
landscape, but for your own sake, you need to be deliberate about
how you keep tabs on your competitors. It can lead to a negative
emotional cycle if you start every day focusing on the competition
while having your bagel and coffee.
In my experience, unless you’re losing deals to specific competitors on a regular basis, it’s more helpful to keep your eyes on your
own paper. Your number one goal should be serving your customers—not perseverating over your competitors’ every move.
There are only two things you should care about when it comes
to competition:
High-Level Updates. If an announcement is big enough to merit
space in your industry news sites, it’s probably worth paying attention to. Is your competition announcing new funding? Launching big features? Making a major shift in positioning?
Read it and understand it. But rather than losing sleep over whether you should follow suit, spend that energy studying what that
55
Market
I did this with Drip. Our home page essentially communicated
that we were “not Infusionsoft, Marketo, or Pardot.”
The SaaS Playbook
tells you about your industry and your customers.
Deals You’re Losing. If you’re losing deals to a competitor, you
should figure out why. Is it because you lack specific features? Is
it because of your pricing? Do they have SOC 2 compliance?
Once you understand why you’re losing deals, you can decide how
to address those objections. Maybe you need to carve out a new position in the market where those features aren’t as necessary. Maybe you need to revamp your pricing or look into securing similar
certifications.
Conversely, here’s my rule of thumb for what you should ignore
about your competitors:
Low-Level Details. From the outside, it might look like your competitors have their act together. But if you’re not in the room where
decisions are being made, all you see is a polished image. Don’t let
that polished image fool you into thinking your competitors know
what they’re doing.
I’ve seen many, many companies raise millions in funding and
then misprice or misposition its product, move too slow on the
technical side, make a mess of its branding, or make any number
of first-time founder mistakes.
Just because your competitor is acting, don’t assume it’s the right
move—or even a well-thought-out move.
Their Funding. If a competitor raises funding, that’s not necessarily a bad sign for you. It’s not a sign they know what they’re doing—just that they were able to convince an investor that there’s
an opportunity.
When I see a company raise funding, the most common result is
that it blows through it in about 18 months. If it doesn’t have sig56
Funding obviously works in some instances, and if you have an
experienced competitor gaining traction and adding funding to
the mix, that’s something to take to heart.
As a caveat, if your competition raises a lot of money—like $5
million or more—be aware they might be trying to suck the air out
of the market by either offering a free solution or dropping prices.
Being Copied. If your product is successful, competitors will
copy you.
Even if you don’t say it to your team, even if you never say it publicly, it’s infuriating to see someone come into your space and copy
your positioning, features, or marketing. It’s even more annoying
when they pretend like they’re innovating by doing so.
As a founder, it’s your job to manage your mindset and not let
their plagiarism derail you. It’s inevitable in business, especially
if you’re on the leading edge of your industry.
Sometimes copying gets so bad you need to enlist the help of a
lawyer to send a cease and desist. Things have to be pretty blatant
to get to this point, but it happens.
One way to make yourself less vulnerable to copycats is to build a
moat around your business.
How Can I Build a Moat?
As you scale your company, you need to think about how to proactively defend against competition. The more success you have,
the more your competitors will grab their battering ram and start
storming the castle.
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nificant traction by then, it is likely to flame out.
The SaaS Playbook
In medieval times, you’d dig a moat to keep enemy armies from
getting anywhere near your castle. In business, you think about
your economic moat.
The idea of an economic moat was popularized by the business
magnate and investor Warren Buffett. It refers to a company’s distinct advantage over its competitors, which allows it to protect its
market share and profitability.
This is hugely important in a competitive space because it’s easy
to become commoditized if you don’t have some type of differentiation.
In SaaS, I’ve seen four types of moats.
Integrations (Network Effect)
Network effect is when the value of a product or service increases because of the number of users in the network. A network of
one telephone isn’t useful. Add a second telephone, and you can
call each other. But add a hundred telephones, and the network is
suddenly quite valuable.
Network effects are fantastic moats. Think about eBay or Craigslist, which have huge amounts of sellers and buyers already on
their platforms. It’s difficult to compete with them because everyone’s already there.
In SaaS—particularly in bootstrapped SaaS companies—the network effect moat comes not from users, but integrations.
Zapier is the prototypical example of this. It’s a juggernaut, and
not only because it’s integrated with over 3,000 apps. It has widened its moat with nonpublic API integrations, meaning that if
you want to compete with it, you have to go to that other company
and get their internal development team to build an API for you.
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Every integration a customer activates in your product, especially
if it puts more of their data into your database, is another reason
for them not to switch to a competitor.
A Strong Brand
When we talk about your brand, we’re not talking about your color scheme or logo. Your brand is your reputation—it’s what people say about your company when you’re not around.
Having a strong brand means you’re in a lot of conversations. When
people discuss options, you’re in the mix. People are talking about
your product on their podcasts and forums and to their colleagues.
You’ve developed a reputation for reliability and innovation, or
maybe you’ve become known for solving a unique problem.
Once people recognize and trust your name, you become a brand
rather than a commodity. Instead of comparing your pricing and
features to everyone else, prospects will start looking at you as a
unique offering, even if your features are mostly equivalent to a
competitor.
There are hundreds of CRMs, but I bet if you and I sat down and
tried to name every one we could think of, we’d top out at maybe
a half dozen. Those are the ones with strong brands. It’s a significant advantage.
A quick note: Positioning is part of your brand.
Maybe your digital asset management software could work for anyone, but if you decide to focus your product on museums and make
sure it talks to the collections management tools they’re already
using—and that your marketing and website are speaking the lan59
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That’s a huge hill to climb if you want to launch a Zapier competitor.
The SaaS Playbook
guage of that world—you may be able to build a brand moat around
a segment of the market that can be tough for competitors to cross.
Positioning is a book in and of itself, so I’ll point you to Obviously
Awesome by April Dunford as one of the best positioning books
for SaaS companies.
A friend of mine owns a SaaS company that’s competing in a massively crowded space. His product gets 500,000 unique visitors
a month because he’s exceptional at search engine optimization
(SEO), and his company ranks on the first page of Google for
many high-volume terms.
He owns these organic traffic channels in his market, so even
though other names on those pages might be more recognizable,
he can stay highly competitive.
Even if you own a high-traffic search term on Google, Amazon, or
the WordPress plugin store, you can have a pretty commoditized
product that can still succeed.
One caveat is that this moat can be a bit dicey to maintain because
the algorithms at any of those companies can change quickly—
and have. Google’s many updates have tanked businesses overnight that depended solely on SEO-driven traffic.
High Switching Costs
Products that require a significant amount of work to migrate
away are said to have high switching costs. High switching costs
reduce your churn and create a moat that keeps customers from
switching to a competitor simply because that competitor is newer, cheaper, or even builds a better product.
Most APIs are difficult to leave because to do so requires expensive developer time to integrate with a new product. Companies like
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Tools like Slack are difficult to switch from because of the need
to obtain buy-in from every manager in an organization. Also,
because of the high number of integrations pushing data, Slack
requires effort to recreate.
Tools with low switching costs are those in which history is mostly irrelevant, and the time it takes to recreate something you’ve
built in the tool is low or nonexistent.
For example, a social media scheduling tool is easy to switch from
because there is no critical history stored or complex workflows
that need to be recreated using a new tool.
Likewise, one-click SaaS analytics tools that tie into your Stripe
account are relatively easy to switch from because they are “oneclick easy” to set up.
False Moat: Unique Features
As makers, we want to believe that features are what differentiate
us. After all, we’ve spent hours building and perfecting those features. That’s worth something, right?
Don’t get me wrong. Unique features are a fantastic differentiator—for a few months, until a competitor duplicates them.
You can create a brand around continuously building and shipping innovative features, especially when your competitors are
legacy companies who don’t have your feature velocity. Believing
these features in and of themselves are a moat, though, is a trap.
By definition, a moat should endure; it should sustain itself and
grow stronger as your business grows. If you’re relying on a constant stream of new features to differentiate you, you don’t have a
moat. You have a hamster wheel of features.
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Stripe, Twilio, and SendGrid have a pretty hefty switching cost moat.
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You can absolutely find growth that way. But realize you’ll also
want to focus on some of the other, more enduring, moats.
Should I Translate My Product into Other Languages?
(And Other Common Mistakes)
I’ve seen founders fall prey to some common siren songs, which I
talk about below. With some rare exceptions, heading down the following roads is a distraction at best and a major blunder at worst.
Founders often take one of these paths to solve a real problem:
their company isn’t growing fast enough. In most cases, the solution is not to pursue these distractions but to strengthen your
product-market fit or improve your marketing and sales efforts.
If your company isn’t growing, you don’t need to chase a siren
song. You need to get to the root of the real problem, one that’s
not usually fixed by the approaches discussed below.
Translating Your Product into Other Languages
When a founder comes to me with the plan of translating their
product into another language, I advise against it.
The mechanics of translating a web application aren’t complicated.
But you’re not just translating the app—or even your knowledge
base, documentation, and website. You need to translate your marketing into Spanish or German or French. You need someone on
your team who can do email support or live chat in that language.
You need to manage your social media presence, maintain an email
list, and many other things to support customers in that language.
There has only been one time when a founder told me they were
going to translate their app and it turned out to be a good decision. In that case, he wanted to add Spanish as a second language
(English being the first).
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White Labeling
White labeling is when another company pays you to license your
product and present it with its own branding, and the moment
you launch a successful product, people will start emailing you
with “exciting opportunities” to white label.
For the most part, these conversations are a big waste of time.
Usually what you have is someone who wants to start a business
but can’t build their own product. They want to pay you per account they add, but they have no audience or distribution. In the
end, you’ll spend a bunch of time talking to them, writing up contracts, and taking feature requests—for nothing.
If you’re approached about white labeling by a large player, it’s
worth having the conversation. You know they’re not wasting
your time because they don’t want to waste their own.
To justify the effort of white labeling, I recommend charging an upfront fee. We’re talking tens of thousands of dollars—$30,000 to
$50,000 at a minimum. If someone balks at paying that fee, they’re
not willing to put enough skin in the game to warrant your efforts.
I’m not a fan of white labeling in most situations. It’s a way to
serve customers and make money without building a brand. We
discussed above how a brand is a moat, and losing that is an unfortunate consequence of white labeling.
Adding Other Verticals Too Early
Adding other verticals is the easiest siren song for me to justify.
Sometimes it makes sense to pivot or expand to other niches. For
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In this case, the users of his product primarily spoke Spanish, but
their managers—his actual customers—mostly spoke English.
This founder didn’t have to take on the challenge of handling marketing or customer support in Spanish, but by translating the app
itself, he made it more accessible to his customers’ end users.
The SaaS Playbook
example, if you have a product that’s working well for wedding photographers, chances are it will also serve wedding videographers.
But unless you’re pivoting your product, you must be extremely
careful about adding new markets. For example, if you add wedding coordinators to your wedding photography SaaS, you’re
probably dealing with audiences that have different needs—even
though they’re in the same industry.
The danger of adding other verticals flippantly is that it can lead to
a lot of complexity in your product. Unless you already dominate
a particular niche and are moving into another or are making a
full-blown pivot into the new space, be careful with this one.
Underpricing Your Product
I dig into pricing in the next chapter, but I want to call out what is
perhaps the most common mistake I see founders make: listening
to the voice in their head telling them that keeping their price low
is the key to kickstarting growth. It’s not.
Most of the reasons I see founders pricing too low are psychological, not logistical. You’re afraid of rejection. You’re having trouble
seeing value in your product because you built it. You’re comparing your price to cheap competitors rather than seeing how much
value you bring to your customers.
Pricing too low holds your business back in two major ways. First,
if you’re charging $10 instead of $100 a month, you have to find
10 times as many customers. Second, you’ll have a much harder
time finding those customers because you’ll be severely limiting
the marketing channels you can afford to use.
Pricing incorrectly can mean the difference between building a
$250,000-a-year business and a multimillion-dollar business.
We’ll dig into that in the next chapter.
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This concludes this sample of The SaaS Playbook.
If you are interested in reading the remaining chapters,
I encourage you to visit saasplaybook.com to purchase
a copy in print, Kindle or audio.